Bombay High Court: No Service Tax on Legal Services by Individual Advocates to Law Firms
The Bombay High Court has once again clarified that service tax cannot be levied on legal services provided by an individual lawyer to a law firm or partnership of advocates.
The Court recently set aside a service tax demand of around ₹26.81 lakh raised against Mumbai-based advocate Manisha Shroff, along with the freezing of her bank accounts. The Division Bench of Justices G.S. Kulkarni and Aarti Sathe held that such a demand was clearly contrary to law.
The ruling was based on two key notifications issued in 2012 under the Finance Act — the ‘mega exemption’ notification and the ‘reverse charge’ mechanism. These notifications create a special tax framework for advocates, keeping them distinct from other service providers.
Under the mega exemption, legal services rendered by an individual advocate to another advocate or a law firm are specifically exempt from service tax. Further, the reverse charge notification makes it clear that even where legal services are taxable, the tax liability is on the client, not on the lawyer providing the service.
The Court also relied on its earlier judgment in Advocate Pooja Patil, where it had already held that no service tax is payable by an individual advocate for services provided to a firm of advocates. Applying the same reasoning, the Bench found that the tax authorities had no jurisdiction to issue demands in Shroff’s case.
The Court also noted serious procedural lapses. The show-cause notice and hearing notices were sent to the advocate’s old address, resulting in non-receipt and an ex parte order confirming the entire demand for the financial year 2016–17. Based on this order, recovery proceedings were initiated, including the freezing of bank accounts. All these actions were quashed by the Court.
Similar relief has been granted by other High Courts as well. The Orissa High Court had earlier quashed a pre-GST service tax demand against a practising advocate, observing that lawyers should not be repeatedly harassed despite clear exemption provisions.
Likewise, the Jharkhand High Court held that the notification scheme does not permit direct service tax demands on senior advocates and struck down such notices.
These rulings together reinforce the settled legal position that individual advocates providing services to law firms are protected from service tax demands under the pre-GST regime.
